TSB cuts self-employed multiples and increases stress rates

From today, TSB has announced it is pausing new build lending at 90% LTV and has cut multiples for the self-employed.

The maximum loan-to-income multiple for self-employed applicants has been lowered from 5.00 times to 4.49 times income.

In addition, the stress rate for background buy-to-let mortgages, on residential mortgage applications, is increasing from 5.5% to 7.0%.

PR platform, Newspage, sought the views of brokers.

Jamie Lennox, director at Dimora Mortgages: "These changes are a clear signal to the industry that there are concerns about house prices dropping and the real risk of negative equity. With new builds typically costing a premium, there is a greater risk to the bank if they have to repossess the property that the "new property premium" is lost and results in it being worth less money on the resale market."

Justin Moy, managing director at EHF Mortgages: "Mortgage lenders will inevitably look to reduce their new build lending to those with small deposits, given the expected property price trends for the next 12/18 months. More emphasis on lower LTV remortgage business and product transfers will be easier for lenders to manage in the short term. This is disappointing for many first-time buyers, but with the higher rates already in place, many will have aborted their plans to move for the time being anyway."

Craig Fish, founder and director at Lodestone Mortgages & Protection: "It's a commonly held view that new builds are overpriced, and with property prices on a downward slide, this 'new home premium' is set to quickly disappear. Lenders are of course going to quickly distance themselves from this risky area and focus on more run-of-the-mill lending to protect their mortgage book and bottom line. This is a clear signal that, at this level, negative equity poses a real risk. As for the change to the self-employed income multiple, well this is a non-story as most lenders operate at this level anyway. Other lenders in the market can be approached who will assist, but it is a shame that the options available to those who are the cornerstone of British business are being limited."

Graham Cox, director at Self Employed Mortgage Hub: "The reduction in the maximum loan-to-income (LTI) multiple for self-employed applicants brings the TSB in line with the vast majority of lenders. Very few offer more than 4.5 times income, and then usually only to higher earners. So it's not hugely significant in the grand scheme of things. Nevertheless, this announcement shows how lenders are becoming more cautious."

Austyn Johnson, founder at Mortgages For Actors: "Surprise surprise, the self-employed are being penalised again. Wouldn't it be easier just to take some time to understand a person's situation better? Self-employed people are more of a secure bet as long as they are still trading successfully."

Gary Boakes, director at Verve Financial: "With the majority of new build houses sold at a premium, it is not a surprise that lenders are taking precautions against what will inevitably be negative equity. Lenders are already pulling 2-year deals at 95% LTV, which just goes to show that lenders are worried about the expected pricing drops. The self- employed multiple cuts are just falling in-line with a lot of lenders, but it is not great news for the self-employed either way."

Lewis Shaw, owner and mortgage broker at Riverside Mortgages: "This is understandable and a sensible approach to take. We know that buyers pay a premium for new build properties and that new builds often reduce in price, similar to a new car when you drive it off the forecourt, for the first couple of years and then begin their price increases following this. Given the reality of house prices falling already, it makes sense to de-risk their offering. TSB must have done some risk modelling and is looking to protect itself as a bank; it's unlikely they will be the last lender to take action like this given the prevailing market conditions. We are in a new normal, and credit availability will tighten; everyone needs to get used to that quickly."